This module is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 1 of 7 · 11 min
Intrinsic value, mispricing and the three model families
Valuation means estimating what a share is worth from its fundamentals and comparing that estimate with the market price, using one or more of three model families.
In short
- Intrinsic (fundamental) value comes from analysing the business; the market price is what the share trades at today.
- Value > price → undervalued; value = price → fairly valued; value < price → overvalued.
- Act only when the gap is large relative to your confidence in the model and inputs, and when you expect the price to converge to value.
- Three model families: present value (discounted cash flow), multiplier (price or EV multiples) and asset-based (assets minus liabilities).
- Analysts often use several models and a range of inputs; the choice depends on the data available and confidence in it.
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